DIRECTORS’ REPORT ON THE PGNIG GROUP’S OPERATIONS IN 2009 Warsaw, March 3rd 2010 Directors’ Report on the PGNiG Group’s Operations in 2009 Contents Contents ................................................................................................................. 2 Chapter I: The 2009 Milestones ............................................................................ 4 Chapter II: Information on the PGNiG Group ...................................................... 5 1. Development Areas ............................................................................................................ 5 2. Structure of the PGNiG Group ........................................................................................... 6 3. Equity Links ..................................................................................................................... 10 4. Employment ..................................................................................................................... 11 5. Sale and Acquisition of Natural Gas ................................................................................ 12 Chapter III: Company’s Governing Bodies ........................................................ 13 1. Management Board .......................................................................................................... 13 2. Supervisory Board ............................................................................................................ 14 Chapter IV: Shareholder Structure ...................................................................... 16 Chapter V: Regulatory Environment .................................................................. 19 1. Polish Energy Law ........................................................................................................... 19 1.1. Licences ..................................................................................................................... 19 1.2. Tariff Policy .............................................................................................................. 20 1.3. Changes in PGNiG SA’s Tariffs ............................................................................... 20 1.4. Changes in the Tariffs of Gas Companies ................................................................. 23 2. Act on Stocks of Crude Oil, Petroleum Products and Natural Gas .................................. 23 3. Polish Geological and Mining Law .................................................................................. 23 4. Regulatory Risks .............................................................................................................. 24 Chapter VI: Exploration and Production ............................................................. 26 1. Exploration ....................................................................................................................... 26 1.1. Exploration in Poland ................................................................................................ 26 1.2. Exploration Abroad ................................................................................................... 27 2. Production ........................................................................................................................ 27 3. Exploration and Production Companies ........................................................................... 30 4. Investment Projects in the Exploration and Production Segment .................................... 37 5. Planned Exploratory Work ............................................................................................... 39 6. Risks Related to Exploration and Production................................................................... 40 Chapter VII: Trade and Storage .......................................................................... 43 2 of 84 Directors’ Report on the PGNiG Group’s Operations in 2009 1. Purchases .......................................................................................................................... 43 2. Sales ................................................................................................................................. 45 3. Storage .............................................................................................................................. 47 4. INVESTGAS S.A. ............................................................................................................ 48 5. Investment Projects in the Trade and Storage Segment ................................................... 48 6. Planned Activities ............................................................................................................ 49 7. Risks Related to Trade and Storage ................................................................................. 50 Chapter VIII: Distribution ................................................................................... 52 1. Dolnośląska Spółka Gazownictwa Sp. z o.o. ................................................................... 52 2. Górnośląska Spółka Gazownictwa Sp. z o.o. ................................................................... 54 3. Karpacka Spółka Gazownictwa Sp. z o.o. ....................................................................... 55 4. The Mazowiecka Spółka Gazownictwa Group ................................................................ 56 5. Pomorska Spółka Gazownictwa Sp. z o.o. ....................................................................... 57 6. Wielkopolska Spółka Gazownictwa Sp. z o.o. ................................................................. 59 7. Investment Projects in the Distribution Segment ............................................................. 60 8. Risks Related to Distribution ........................................................................................... 60 Chapter IX: Other Activities ............................................................................... 62 Chapter X: Environmental Protection ................................................................. 66 Chapter XI: Other Information ............................................................................ 68 Chapter XII: Financial Performance ................................................................... 70 1. Financial Perfomance in 2009 .......................................................................................... 70 1.1. Key Business and Financial Information .................................................................. 70 *Equity attributable to equity holders of the parent. ........................................................ 74 1.2. Overview of the Financial Performance .................................................................... 75 2. Financial Management ..................................................................................................... 80 2.1. Current Investments .................................................................................................. 80 2.2. Loan Agreements ...................................................................................................... 80 2.3. Guarantees and Sureties ............................................................................................ 81 2.4. Financial Risk Management ...................................................................................... 82 3. Financial Forecasts ........................................................................................................... 83 Appendix: Statement of Compliance with Corporate Governance Principles at Polskie Górnictwo Naftowe i Gazownictwo S.A. in 2009 3 of 84 Directors’ Report on the PGNiG Group’s Operations in 2009 Chapter I: The 2009 Milestones January PGNiG S.A. starts to perform the functions of the Storage System Operator (SSO). PGNiG Norway AS acquires a 30% interest in the PL 350 licence and a 25% interest in the PL 419 licence on the Norwegian Continental Shelf. Gas supplies under the binding agreement with ROSUKRENERGO AG are discontinued. The shortage in gas supplies is made up by a temporary increase in volumes delivered by Gazprom Export, as well as higher volumes withdrawn from the storage facilities. March PGNiG S.A. acquires a 40% interest in the 1/05 licence in Denmark from Odin Energi A/S. April The beginning of the process of free-of-charge acquisition of PGNiG S.A. shares by entitled persons. The execution of a Framework Agreement between PGNiG and Qatargas Operating Company Ltd. setting out the rules of cooperation with regard to long-term LNG supplies. Members of the Skanled Consortium decide to suspend the Skanled gas pipeline project. May Approval of gaseous fuel tariffs for PGNiG S.A. and gaseous fuel distribution tariffs for the Gas Companies. PGNiG Norway AS acquires a 35% interest in the PL 521 licence on the Norwegian Continental Shelf. Process start-up of the Grodzisk Denitriding Plant. June Execution of a contract between PGNiG S.A. and Gazprom Export providing for the supplies of gas in the summer period. Approval of a gaseous fuel storage tariff. The Annual General Shareholders Meeting discharges members of the Management and Supervisory Boards with respect to their performance of duties in the 2008 financial year and decides on the allocation of the 2008 net profit. Execution of a contract between PGNiG S.A. and Qatargas Operating Company Ltd. providing for the supplies of liquefied natural gas (LNG). July Execution of a Framework Agreement